The anonymous founders of the DeFi token WhaleFarm, who promised a 7.2-million annual percentage yield and people believed them, have stolen an estimated $2.3 million from investors in the latest rug pull.
The fully anonymous team that launched the token days ago has deactivated its Twitter page and deleted its Telegram group, crypto analyst Mr. Whale tweeted.
“Some people actually bought the dip,” @drivencat55 replied.
Here are three things to know about what’s wrong with the Defi market.
Crime in the booming decentralized finance (DeFi) industry is at an all-time high and rug pulls are one of the top exit scams, according to a report from crypto intelligence company CipherTrace. Rug pulls may seem to be a weekly occurrence, but they’re not new. They’re just getting more attention after huge run-ups for many DeFi tokens, Bloomberg reported. In the second half of 2020, almost 99 percent of major fraud was from rug pulls and exit scams.
DeFi applications — many, embedded in the ethereum blockchain — facilitate crypto-denominated lending outside traditional banking. They use an open-source code with algorithms that set lending rates in real time based on supply and demand.
A rug pull is a malicious maneuver where crypto developers abandon a project and steal investors’ funds. It usually happens in the DeFi ecosystem. The perpetrators create a token and list it, then pair it with a leading cryptocurrency such as ethereum.
Hedge fund co-founder Jesse Felder described too-good-to-be-true DeFi offerings as fake everything. “The whole thing is just fake — people get fake yields, they get fake balances and then eventually the founders just take everything. A competitor platform is offering 10%, so I say I can get you 20%. You send me your money and then I run,” @jessefelder tweeted.
Wilfred Daye, CEO of Enigma Securities, told Bloomberg how a rug pull might work: “A token developer copies an existing smart contract code off a public venue and then issues a platform token. The developer then markets it, lists it on a decentralized exchange, and attracts higher-value coins like wrapped Bitcoin or Ether in what’s known as a liquidity pool. The developer then sells or redeems their platform token, depleting the liquidity pool of the project. They can then make off with the proceeds.”
In 2019, there were no reported DeFi losses. In 2021 through the end of April, crypto criminals globally took off with $432 million, according to the CipherTrace report. About 56 percent of that — $240 million — was DeFi-related, a record.
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The value locked – the total number of loans on DeFi platforms – was $86 billion as of Wednesday, according to DeFi Pulse data — up about 650 percent from $11 billion in October, Reuters reported.
“As more money pours into the space from retail and institutional players, bad actors will seek to take advantage of the hype to draw people into scams and hackers will seek out projects that have launched without performing adequate security audits, exploiting loopholes encoded in the smart contracts,” said CipherTrace CEO Dave Jevans.
Earlier this month, the DeFi Titanium token went from $60 to $0 in a day. Mark Cuban had invested in it.
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